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Chapter 17: How a redesigned imputation system would apply to entities

Key policy issues associated with:

Option 1
Deferred company tax
Option 2
Resident dividend withholding tax (RDWT)
Option 3
Taxing unfranked inter-entity distributions
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Further policy issues
How should deferred company tax be calculated? How should deferred company tax be collected? How should a RDWT be calculated? How should a RDWT be collected? How should double tax through the entity chain be prevented under the full franking system? What should be the arrangements for entities with substituted accounting periods?
Use franking account to calculate deferred company tax on:

Option 1
A taxed income basis

Option 2
A taxed paid basis.

When should deferred company tax be determined?

Options 1-2
Align franking and income year (potentially exclude current year instalments).

Option 3
Align franking year to the payment year.

Option 4
Ascertain tax at time
of distribution.

Option 1a
Build deferred company tax payments into the turnover ratio.

Option 1b
Base instalments on previous year’s liability to deferred company tax.

Option 1c
Require instalments at the time of distribution.

Option 2
Collect on assessment.

Collection of deferred company tax on in-kind distributions by a liquidator.

Based on the existing measurement of unfranked distributions paid to resident investors. Based on existing collection arrangements for dividend withholding tax on dividends paid to non residents. Include unfranked distributions in receiving entity’s assessable income. Option 1
Gross-up and credit.

Option 2
Exempt distributions between entities.

Option 3
Provide an inter-entity dividend rebate.

Option 1
Apply the new entity tax system to all entities from their 2000-01 income year.

Option 2
Apply the new entity tax system to all entities from 1 July 2000.

Option 3
Apply the new entity tax system to early balancers from the beginning of their 2001-02 income year.